9102013 Week 4 LT C Apollo Shoes Case S
Hi Team C, you presented 2 Word files, including a certificate of originality, as well as a file containing a memo of audit conclusions for the audit of the fixed asset cycle, and a memo on prepaid assets and other asset conclusions, as well as leadsheets for fixed assets and prepaid assets. Your memo contained excellent conclusions, including inconsistencies in the useful life of real property, computer equipment, and production equipment. You noted inconsistencies in depreciation method for various asset categories based on Apollo Shoes accounting guidelines. Regarding R&D cost related to certain patents that had been capitalized, I agree with your conclusion that the patents should be expensed. You also had valid conclusions in your prepaid assets and other assets workpapers. You did note the most material issue in my opinion, which is the failure to reclassify from prepaid insurance to insurance expense. That is a nearly $900,000 adjustment, clearly material. However, you missed the most material fixed asset issue, which is assets that were depreciated, but not yet placed in service. You made reference to prepaid insurance, and correctly adjusted the prepaid balance to note the failure to expense current year insurance, which would have reduced prepaid insurance. For other assets, I didn’t see any reference to indicators that the Shockproof Socks investment was incorrectly classified. You also could have presented a bank reconciliation. You made observations about fixed assets, but correctly kept in mind that it’s not the auditor who makes adjustments to the client’s financial statements. The auditor should point out audit deficiencies, but it is the client that make the ultimate judgment to make changes. Some suggestions are to organize your workpapers using tick marks and footnotes. It will really organize your workpapers. Some other suggestions are, you could have documented your audit plan, or presented more in the way of authority for your